A Novel Idea

Frank Rich, Paul Krugman, William Greider and now Katrina vanden Heuvel all believe Obama should change course on the economic issue.

Frank Rich is right. Firing Treasury Secretary Timothy Geithner won't get us out of the economic disaster we're in. But at this time of righteous rage, deploying Geithner and Lawrence Summers as the administration's chief economic messengers displays an astonishing tone-deafness. These are men who, as Rich puts it, " are too marinated in the insiders' culture to police it, reform it or own up to their past complicity with it."

Or as The Nation's William Greider explains in Sunday's Washington Post, the anger roiling the nation could "devour his presidency." Yet Obama "does not seem to grasp that the tone-deaf technocrats are leading him into a dead-end."

Vanden Heuvel believes that, "We deserve a Treasury Secretary who hasn't been a player in Wall Street's lifestyle of bonuses and legalized corruption." She puts forth the possibility of bringing in Nobel Prize winning economists Joseph Stiglitz or Paul Krugman. She posits that "they are increasingly valuable as watchdogs and constructive critics working outside the Administration."

Vanden Heuval is looking for someone outside of the banking business and corporate power structure who will be an independent observer and thinker. She has a 'novel idea.'

Why not bring in the man who took on Wall Street and AIG long before it was trendy? Eliot Spitzer. Call me crazy. But he foresaw the bubbles and disasters resulting from deregulatory frenzy and the financial service industry's creation of toxic credit default swaps and derivatives. As the Sherriff of Wall Street, Spitzer launched investigations and lawsuits deploying the creative cudgel of the previously-obscure 1921 Martin Act. [...]

In his first television interview since resigning as Governor, on CNN"s Fareed Zakaria's "GPS" program, Spitzer offered a compelling analysis of how we got into this mess and spoke clearly about the need for new regulations to rein in Wall Street's "recklessness and greed." He criticized Wall Street's former masters for their "hot dog cowboy mentality which leveraged everything up." (And he praised old fashioned Wall Street types like Felix Rohatyn for not falling prey to that mentality.)

While acknowledging the outrage of AIG's bonuses, Spitzer focused on the larger outrage: the use of billions in taxpayer dollars to prop up AIG and various counterparties, including Goldman Sachs (which received $12 billion plus of the government's original infusion). He also castigated the media, including CNBC, for failing to ask the tough questions, and the SEC and other relevant government agencies for lacking the will and creativity to do their job. When asked about how he'd handle the legal issue of retrieving AIG 's bonuses, Spitzer referred to tort law and the theory of unjust enrichment--along with other creative ideas--to get justice for taxpayers.

Spitzer took on Wall Street's metastasizing corruption before the meltdown. He defended consumers' and taxpayers' rights. He speaks with passion and clarity about what went wrong and what needs to be done to restore integrity to our system. He is chastened by personal scandal, yet untouched by complicity in Wall Street's public scandals which have obliterated peoples' savings and devastated our country.

So what do you think?

Spitzer for Treasury Secretary?

The Inquiry that Should be Raised

Former Governor of New York Eliot Spitzer has been talking about the AIG scandal and the issue of bonuses. An interview with Air America's Mark Green can be heard here.

While speaking to CNN’s Fareed Zakaria, Spitzer spelled out Wall Street's failure of judgment . He reiterated that the AIG bonuses are not the heart of the current financial problem. He believes that the focus of the problem should be on how AIG used the bailout money and where the money was funneled into.

Spitzer also told Zakaria that recklessness, greed and financial experts' misunderstanding of capitalism got us into the current financial crisis.

When AIG initially received $80 billion -- a decision that was the consequence of a very brief meeting of the president of the New York Fed, the secretary of the Treasury, perhaps Chairman Bernanke and arguably, some reports say, the chairman of Goldman Sachs -- $80 billion, virtually all of it flowed out to counterparties, $12.9 billion to Goldman Sachs.

Why did that happen? What questions were asked? Why did we need to pay 100 cents on the dollar on those transactions, if we had to pay anything? What would have happened to the financial system, had it not been paid?

According to Spitzer the issue of bonuses "touches us viscerally." However, the real issue invloves the money that AIG gave out.

The real money and the real structural issue is the dynamic between AIG and the counterparts. The bonuses we think are 164 billion dollars...These counter party payments are tens and tens of billions of dollars.

Watch 3 parts of the Spitzer interview:

Part I: The "Nature of the Inquiry that Should be Raised"


Part II: Unjust Enrichment


Part III: The Role of Media

Everyone has an Opinion

The Real AIG Scandal according to Eliot Spitzer:

It's not the bonuses. It's that AIG's counterparties are getting paid back in full.

Everybody is rushing to condemn AIG's bonuses, but this simple scandal is obscuring the real disgrace at the insurance giant: Why are AIG's counterparties getting paid back in full, to the tune of tens of billions of taxpayer dollars?

For the answer to this question, we need to go back to the very first decision to bail out AIG, made, we are told, by then-Treasury Secretary Henry Paulson, then-New York Fed official Timothy Geithner, Goldman Sachs CEO Lloyd Blankfein, and Fed Chairman Ben Bernanke last fall. Post-Lehman's collapse, they feared a systemic failure could be triggered by AIG's inability to pay the counterparties to all the sophisticated instruments AIG had sold. And who were AIG's trading partners? No shock here: Goldman, Bank of America, Merrill Lynch, UBS, JPMorgan Chase, Morgan Stanley, Deutsche Bank, Barclays, and on it goes. So now we know for sure what we already surmised: The AIG bailout has been a way to hide an enormous second round of cash to the same group that had received TARP money already.

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